Happy Days

Was everybody out of step but Wall Street? Last week it seemed so. As news of strikes and wage demands clogged the tickers, the market reacted to it almost as if it were good news. Not for months had there been such a scramble to buy. By week's end, the Dow-Jones averages had climbed up to 188, close to the highs of the last big bull market in 1937.

The reason why Wall Streeters kept buying in the face of such news was plain. They were betting on an upcoming business boom, plus a heady dose of inflation. Ever since V-J day they had kept their eyes, and staked their cash, on this. Short-term troubles, which may well cut earnings, were discounted.

Everybody Wins? The market, which sank on the news of the U.A.W.'s wage demands (see cut), rose after the demands were eased. But neither wage demands, strikes nor reconversion pains were enough to halt the upsurge. Even President Truman's wage policy, which seemed to give wage increases at the expense of immediate profits, was interpreted bullishly by shrewd Wall Streeters. They felt that if wage increases are permitted, then price increases must eventually follow -- and the U.S. will have more inflation than it now has. As a hedge, they bought stocks. In the two days after the President spoke, 4,270,000 shares traded hands, biggest turnover in four months. Up went the averages 4.7 points.

Much for Little. On top of this the market was "thin," i.e., it needed a comparatively small number of buyers to send a stock up. This was partly due to the Federal Reserve Board boost in margin requirements in July. By putting stock trading close to a cash basis, it cut down the number of day-to-day traders, thus reduced the stock in circulation. Example : in one day, the purchase of 800 of Du Pont's outstanding 11,000,000 shares sent the stock up 3 1/4.

Nevertheless, the market was on solider ground, dividendwise, than it had been in 1937. Example: railroad stocks now pay dividends of 5.44% compared to only 2.88% in 1937.

During the first nine months of this year, dividend payments reached a total of $1.5 billion, up 4.2% over a year ago.

The textile industry, that had loudly complained that it was being driven to bankruptcy by OPA price ceilings, managed to lift its dividend payments by a whacking 26.8%.

As usual, there were Cassandras who predicted that the market was riding for a fall: it had been going up for so long that it was bound to start coming down soon. To this the Bulls had an answer: as long as inflationary pressures increase, there is no reason why the market should go down.

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